Procter & Gamble (PG) is a high-quality consumer staples stock. It has raised its dividend for 64 consecutive years, making it a Dividend King, with one of the longest dividend growth streaks in the S&P 500.
It is also a significant holding of high-profile institutional investors such as Bridgewater Associates, the hedge fund of Ray Dalio, who is well-known for identifying stocks with superior risk-adjusted returns.
Procter & Gamble is not the most exciting stock, but it is arguably one of the safest dividends in the entire stock market.
Procter & Gamble is a consumer products giant that sells its products in more than 180 countries and generates approximately $74 billion in annual revenues. Notable brands include Pampers, Luvs, Tide, Gain, Bounty, Charmin, Puffs, Gillette, and Head & Shoulders.
Thanks to the great popularity and reputation of its products, Procter & Gamble has consistently grown its earnings for decades. The company has reshaped its business model in recent years, to slim down by divesting itself of slow-growth brands. The company divested nearly two-thirds of its brands and got rid of the slow-growth, low-margin products while it maintained the ones with the strongest growth potential and highest margins. In this way, management was able to focus much more efficiently on its strongest brands.
Thanks to this business streamlining, Procter & Gamble has returned to growth mode in the last five years. The company has also benefited from the coronavirus crisis, which has provided a strong boost in the sales of home care and hygiene products. This tailwind has more than offset the negative effect of the pandemic on the consumption of products related to personal care.
The strong business momentum was evident in 2020. For the most recent quarter, Procter & Gamble grew its revenue by 8.3% over the prior year’s quarter and its adjusted earnings per share by 15.5%, from $1.42 to $1.64. This strong performance resulted from growth across the board, with the company’s five reporting segments – Beauty, Grooming, Health Care, Fabric & Home Care and Baby, Feminine & Family Care – all posting revenue growth above 5%. Thanks to sustained business momentum, the consumer product giant is on track to achieve record earnings per share of approximately $5.60 in fiscal 2021.
Procter & Gamble has grown its earnings per share at a 3.8% average annual rate over the last decade. Its growth has accelerated more recently, thanks to its restructuring. As the remaining brands in the portfolio of Procter & Gamble are the ones with the most promising growth prospects and the widest margins, it is reasonable to expect the company to continue growing its earnings for many more years. Overall, we expect Procter & Gamble to grow its earnings per share by approximately 4% per year on average over the next five years off this year’s record level.
Shareholders will continue to benefit from this growth, partly with a rising dividend. Procter & Gamble has raised its dividend for 64 consecutive years. It has achieved such an exceptional dividend record thanks to the consistent sales growth of its premium products and its expansion in international markets.
Another key factor behind the multi-decade dividend growth streak of Procter & Gamble is its resilience to recessions. Its products are essential to consumers and hence the latter do not reduce their consumption even under the most adverse economic conditions. In the ongoing coronavirus pandemic, which caused the U.S. to enter a recession in 2020, Procter & Gamble has performed even better by posting record earnings.
Thanks to its resilience during economic downturns, its strong balance sheet and its healthy dividend payout ratio of ~56%, Procter & Gamble should easily continue raising its dividend for many more years.
Procter & Gamble is offering a market-beating 2.5% dividend yield and possesses an exceptional dividend growth history. It has generated strong growth in recent years, thanks to its world-class brands and global competitive advantages. Investors can expect the company to continue raising its dividend for many years, making it an appealing stock for risk-averse income investors such as retirees.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame
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